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Another look at Tax Friendly Retirement States

Several postings ago I detailed states that were favorable for retirement based on taxes. An important thing to remember is that just because a state does not have an income tax that doesn’t necessarily mean that the overall taxes in that state are lower. When you factor in property, sales, and inheritance taxes, the income tax states actually look more competitive.

According to Kiplinger’s 2008 “Retirement Planning” magazine, 9 states* have no income taxes:

  1. Alaska
  2. Florida
  3. Nevada
  4. South Dakota
  5. Texas
  6. Washington
  7. Wyoming

* New Hampshire and Tennessee tax only interest and dividends.

Five states have no sales tax:

  1. Arkansas
  2. Delaware
  3. Montana
  4. New Hampshire
  5. Oregon

Eight states collect inheritance tax:

  1. Indiana
  2. Iowa
  3. Kentucky
  4. Maryland
  5. Nebraska
  6. New Jersey
  7. Pennsylvania
  8. Tennessee

When MSN Money examined a hypothetical case of a retired married couple living on an income of $60,000. When calculating their expected taxes that include all factors, the top six states for retirees were:

  1. Delaware
  2. Alaska
  3. Kentucky
  4. South Carolina
  5. New York
  6. Michigan

The highest state tax bill was in Pennsylvania, which due to an excessively large property bill, led all others, and that’s before collecting their inheritance tax when you pass on.

While taxes alone shouldn’t determine your retirement location, it’s helpful to compare options if you’re not determined to live in one state or another. Also, more than 20 states had a total tax obligation of less than 5% of the hypothetical retirement couples income. Given the services that an American receives for their taxes, I’d say it’s still a very fair deal.

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